Report: Inequality Hasn’t Changed in 25 Years

By

Robert Frank

Dec 6, 2011 1:14 pm ET

I’ve written before about the myth of sudden inequality. While income inequality has increased dramatically over the past 30 years, it’s declined since 2007 and wealth inequality is actually lower than it was in 1995 – raising questions about the link between inequality and the current unemployment rate.

The study, by Ronald M. Schmidt, of the William E. Simon Graduate School of Business Administration University of Rochester, challenges the recent CBO report that found that income inequality expanded dramatically between 1979 and 2007. That report said the incomes of the top 1% grew by 275% over the period, while incomes for most Americans grew by 40% or less.

Schmidt’s study said that most of the CBO’s cited growth in inequality happened between 1979 and 1986. “Most of the increase from 1979 and 2009 had occurred by 1986,” he writes.

Any increases in inequality during the 2000s was “wiped out” by the current recession, which saw incomes at the top fall more than the rest as of 2009. “In fact,” he writes, “there was a marked decline in income inequality over the entire decade” of the 2000s.

I should note that the post-2009 data may tell a different story. Inequality may well have dipped temporarily in 2009 but rebounded with stock markets in 2010 and 2011. Inequality may actually be higher today than it was in 2007. And even if it’s not, inequality in America is still high compared to other developed countries.

But as Schmidt points out, the most current data shows that the difference in average after-tax incomes between those making more than $500,000 and those making less than $500,000 was $1.5 million in 2000. That distance shrunk by $450,000 by 2009.

“A careful analysis reveals no significant deterioration in economic inequality that could serve as a pretext for raising taxes,” Schmidt argues.

Do you think “rising” inequality is a good reason to raise taxes on the rich?

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